Chapter 1 Lecture Notes

Managerial Accounting and the Business Environment

ORGANIZATION STRUCTURE

Decentralization

Organi
Functional View

Organizational chart
(Exhibit 1-2 page 6)
C o r p o r a t e O r g a n i z a t i
-shows division of responsibility
B o a r d o f D i r e c t o r s
-shows “chain of command”
P r e s i d e n t

Decentralizati
-each box depicts an area of

Decentralizat
P u r c h a sP i en rg s o n V n i ce el P r Ce sh i i de ef n F t i n a n c i a l
management responsibility. O p e r a t i o O n f sf i c e r

making
making auth
-line between boxes show the T r e a s C u o r en r t r o l l e r
lines of formal authority between
managers auth
-also depicts line and staff positions

Chief Financial Officer (CFO)

-A member of the top management team responsible for:
* Providing timely and relevant data to support planning and control
activities
* Preparing financial statements for external users.

Controller
-runs the accounting and tax department
-must be adept in accounting, business processes, tax implications,
information systems and accounting software

Management accountant
-provide support to line positions through consulting and analyzing data
-actively involved in decision making

PROCESS MANAGEMENT

Business Process: a series of steps that are followed in order to carry out
some task in a business. “Value Stream”
Value chain: consists of the major business functions that add value to a
company’s products and services. (see Exhibit 1-3 on page 7)

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APPROACHES TO PROCESS MANAGEMENT

LEAN PRODUCTION

PULL (lean production) versus PUSH (traditional production)

(Lean Thinking Model): organizes resources around the flow of business

processes in order to efficiently respond to customer demand without
wasting resources. JIT is part of Lean Production.

1-23

Benefits:
1. Lower inventory levels,

 Identif
2. Fewer defects,
3. Less wasted effort, and
4. Quicker customer response times.

Manufacturing cell—improved plant layout

in spe
Just-in-time (JIT)--pull system: Purchase material and produce units only
as needed…under ideal conditions only enough inventory would be on hand
to satisfy daily demand…leaving ending inventory at a 0 balance.

Supply Chain Management—coordination of business processes across

products/s
companies to better serve the end consumers.

THEORY OF CONSTRAINTS (TOC)

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Constraint: (“bottleneck”) is anything that prevents you from getting more of
what you want.

Manage constraint

Theory

Only actions
that strengthen
SIX SIGMA
the weakest link
Six Sigma (or Zero Defects) is a process improvement method that relies on

drive process improvement.

in the
customer feedback and fact-based “chain”
data gathering and analysis techniques to

DMAIC
improve the
1-29 process.

1.
1.Identify
Identifythe
the
S
weakest
weakestlink.
link.
The Six S
Stage
Define ● Establish th
● Diagram th
● Establish th
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McGraw-Hill/Irwin process.
CORPORATE GOVERNANCE: SARBANES-OXLEY ACT OF 2002

The Sarbanes-Oxley Act of 2002 was intended to protect the interests of

those who invest in publicly traded companies by improving the reliability
and accuracy of corporate financial reports and disclosures.

Core 1 Review

Basic Equation for Inventory Accounts

BI + Additions to Inventory = EI + subtractions from Inventory

T-accounts A Valuable Tool

Assets or Expenses Liability or SE or

+ -
Revenue
Beginnin subtractio - +
g ns subtracti Beginnin
Additions ons g
ending
Additions
Why do assets/expenses increase on the ending
LEFT and liabilities/equity/revenues increase
on the RIGHT?
Balance Sheet Income Statement
Assets Liabilitie Stockholders’ Equity Revenues Expenses Net
s Income
Common Retained
Stock Earnings

Income Statement:
Sales COGS Equation:
Less Cost of Goods Sold Beginning Inventory
= Gross profit Plus purchases
Less operating expenses = Goods available
= Operating income (or Net operating income) for sale
Less ending
Practice: inventory
= Cost of Goods sold
FIND:
Gross profit $300,00 Inventory $
0 purchases
Operating 160,000 COGS
expenses
Beginning 8,000 Sales
inventory
Ending inventory 6,000 Operating
income
GAFS 222,000 Gross profit % %

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 Chapter 1 Homework Questions
Post your answers in Angel (under Lesson Tab)

Use the following terms to answer questions 1 – 6

Decentralization, Line, Staff, Controller, Organization chart, Chief Financial
Officer

1 A diagram that shows how responsibility is divided among

managers and shows the formal lines of reporting and
communication is called an ___

2 A __ position provides services or assistance to other parts

of the organization and does not directly achieve the basic
objectives of the organization.

3 The manager in charge of the accounting department is

generally known as the __.

4 The delegation of decision-making authority throughout

an organization by allowing managers at various operation
levels to make key decisions relating to their area of
responsibility is called __.

5 The __ is the member of the top management team who is

responsible for providing timely and relevant data to
support planning and control activities and for preparing
financial statements for external users.

6 A position that is directly related to achieving the basic

objectives of an organization is called a __ position.

Use the following to answer questions 7 - 14

A. business process G. lean thinking model M. stakeholders

B. constraint H. manufacturing cell N. strategy
O. supply chain
C. corporate governance I. nonconstraint management
D. corporate social
responsibility J. non-value-added activity P. Sarbanes-Oxley Act
E. customer value
proposition K. pulls Q. Theory of Constraints
F. enterprise risk
management L. Six Sigma R. value chain
Use the letter that relates to the answer: for example, if the answer is
“business process” you would use letter A as your answer.

7 The process used by a company to help identify the

risks that it faces and to develop responses to

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 those risks so that the company is reasonably
assured of meeting its goals is known as______.

8 The management approach that emphasizes the

importance of managing constraints is known as
the __.

9 A __ is a work space that takes employees and

equipment from departments that were previously
separated from one another and places them side-
by-side.

10 Increasing the rate of output of a(n) __ as the result

of an improvement effort is unlikely to have much
effect on profits.

11 A(n) ______ consists of business functions, that add

value to a company’s products and services such
as research and development, product design,
manufacturing, marketing, distribution, and
customer service.

12 A(n) __ is a series of steps that are followed to carry

out some task in a business.

13 A management approach that coordinates business

processes across companies to better serve end
consumers is known as __.

14 __ is a method that relies on customer feedback

and objective data gathering and analysis
techniques to drive process improvement.

Use the following to answer questions 15 - 19

Taste Best Company uses the periodic inventory system. It has compiled the
following information in order to prepare the financial statements at the end
of 2010:

Sales during 2010 $512,000

Operating expenses 185,200
Beginning inventory, January 1, 8,650
2010
Ending inventory, December 31, 3,250
2010
Cost of Goods Purchased during 291,560
2010

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 Goods available for
15. $____________
sale
16. Cost of goods sold $____________

17. Gross profit $____________

18. Operating income $____________

19. Gross profit ratio ____________%

20. Joe sells 1,800 units of product X45 for $24 per unit. It costs him $19
per unit to make them; what is his gross profit?
$__________________

21 Which of the following statements 24 Dorra Corp. manufactures

. is/are true? . lawnmowers in five workstations.
I. A firm's organization Dorra’s weekly demand is 5,000
chart will normally show both the mowers but Dorra can only
formal and informal lines of produce 4,200. According to the
reporting and communication. Theory of Constraints, to
II. Decentralization
increase production output Dorra
means the delegation of decision-
making authority throughout an
would benefit the most by
organization by allowing concentrating improvement
managers at various operating efforts on the:
levels to make key decisions
relating to their own area of A) First work station.
responsibility. B) Last work station.
C) Largest work station.
A) I only D) Fastest work station.
B) II only E) Slowest work station
C) I and II
D) Neither I nor II

22 The controller occupies: Use the following to answer

. questions 5 – 10
A) a line position.
B) a staff position. $231,5
C) neither a line nor a staff Sales 00
position since the accounting operating expenses 72,900
department must be beginning inventory 3,650
independent. ending inventory 1,640
D)both a line and a staff 141,52
position purchases 0
25 Goods available for Sale:
. $___________

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23 Ideally, how many units should be
. produced in a just-in-time
manufacturing system?
A) budgeted customer
demand for the present
(hour/day/week).
B) budgeted customer
demand for future.
C) enough to satisfy actual
customer demand for the
present (hour/day/week).
D) maximum production
capacity for the current week.
Chapter 1 Spring 2011
26 Cost of Goods sold:
. $____________
27 Gross profit:
. $______________
28 Operating income:
. $______________
29 Gross profit ratio: ___ ___
. %
30 If operating expenses increased
. by $3,000 gross profit would be:
$___________
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